Solar Subsidies Make Electricity Bills More Expensive

Renewable energy supporters have been emphatic in calling for the United States government to provide subsidies comparable to those offered by foreign “competitors,” yet it is worth noting that the foreign experience with renewable energy subsidies has not led to especially effective results. One of the most striking examples is Germany—the world’s largest solar power producer whose energy industry is facing serious economic problems now that the German government is imposing massive cuts to its solar subsidies.

In 1990, Germany enacted a feed-in tariff law that requires utilities to purchase electricity generated with renewable electricity at a fixed price that is guaranteed for 20 years. These subsidies, which were then boosted in 2000 and 2004, led to Germany becoming the world leader in solar power. However, after the initial growth that led the country to become the world’s first solar energy producer, today its solar manufacturing and production industry is crashing rapidly due to cuts in these generous subsidies.[ia]

In February of this year, the German government announced drastic new cuts to the country’s solar incentives. After several months of heated discussion, the German Bundestag (the lower house of the country’s parliament) approved 20 to 30 percent subsidy reductions, depending on the size of the solar energy system.[ii] These subsidy reductions, the first of which began in 2009, have hit the country’s solar industry hard—since December of last year, over a half dozen German solar manufacturers have declared bankruptcy.[iii] These are likely just the first of many, as the country intends to phase all solar subsidies out by 2017.